Profit of $1.87 a share topped forecasts by 2 cents, but the quarter included $170 million of discrete tax benefits. Revenue and net interest income missed, and the bank left its full-year outlook unchanged.
Wells Fargo cleared the bar on earnings per share by 2 cents. A tax benefit was worth more than that.
The bank reported third-quarter net income of $5.95 billion, or $1.87 a share, on Tuesday, up from $1.66 a year earlier. Analysts surveyed by LSEG had expected $1.85.
The quarter included $170 million of discrete tax benefits, and the effective tax rate was 16.4%. Spread across about 3.05 billion diluted shares, the benefit is worth roughly 5.6 cents a share. The second quarter had also included discrete tax benefits, of $132 million. Wells Fargo does not present earnings excluding the item, but on that arithmetic results would have been about $1.81, below forecasts.
The top line
Revenue rose 2% to $21.87 billion, short of the $22.3 billion analysts surveyed by LSEG expected, and fell 3% from the second quarter. Net interest income rose 5% from a year earlier to $12.52 billion, below the $12.66 billion analysts tracked by StreetAccount had forecast. The net interest margin was unchanged from the second quarter at 2.43%, down from 2.61% a year earlier.
Fee income fell 9% from the second quarter. In the corporate and investment bank, markets revenue fell 1% from a year earlier and 17% from the second quarter. Investment banking revenue rose 10% from a year earlier, and Chief Executive Charlie Scharf said M&A revenue rose 30%.
Where the per-share growth came from
Net income rose 6% from a year earlier. Earnings per share rose 13%. The difference is the share count: diluted shares fell about 5% over the year, to 3,051.5 million, as the bank kept buying back stock. It repurchased 28.6 million shares for $2.5 billion in the third quarter.
Costs were contained. Noninterest expense fell 1% to $13.74 billion even though, Mr. Scharf said, "revenue-related expenses increased 15%." The efficiency ratio, however, rose to 63% from 60% in the second quarter as revenue fell.
Credit and capital
The provision for credit losses rose 51% from a year earlier to $1.03 billion, though it came in below the $1.14 billion analysts tracked by StreetAccount had expected. The commercial charge-off rate rose to 0.18% from 0.10% in the second quarter. Nonperforming assets fell to $7.36 billion from $7.94 billion.
The standardized common equity Tier 1 ratio fell to 10.0% from 10.3%, and common stockholders' equity fell to $158.8 billion from $165.0 billion at the end of June. The bank said lower accumulated other comprehensive income, driven by higher interest rates, cut its CET1 ratio by 0.38 percentage point from June.
The outlook
Wells Fargo kept its full-year forecast for net interest income at about $50 billion and for noninterest expense at about $55.7 billion. It expects fourth-quarter net interest income of about $13 billion, an increase of nearly $0.5 billion, or about 4%, from the third quarter.
Mr. Scharf said "higher interest rates, higher oil prices and persistent inflation create risks to the economy," but that AI infrastructure investment, employment and wage growth "continue to outweigh the risks."
The shares were down 1.3% at $82.24 in early premarket trading at 7:44 a.m. Eastern, compared with Monday's close of $83.30.
Market implications
One reading is that the core franchise is improving. Consumer banking and lending profit rose 21%, expenses fell, the provision for credit losses came in below forecasts, nonperforming assets declined, and the bank still expects a strong step-up in interest income next quarter.
A second reading is that the beat was thin. Without the tax benefit, earnings would have missed, revenue and interest income fell short, and buybacks did much of the work in per-share growth while capital and equity declined.
What to watch
Management's comments on the earnings call about the path back toward its capital target, roughly $13 billion of fourth-quarter interest income and the rise in commercial charge-offs will set the next move.
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